Tripartite agreements — also known as tri-party agreements — are legal agreements or contracts between three individuals or parties. These agreements can be a useful tool when setting up a tripartite employment relationship to grow your international workforce.
In this article, we explain everything you need to know about tri-partite agreements, including the precise meaning of ‘tripartite agreement’, when your company should consider using one, the risks of not using one and the key terms to include in such an agreement.
Please note, this article provides general information. You must seek professional legal advice to determine whether a tripartite agreement is the right choice for you.
What is a Tripartite Agreement?
Consider a regular contract or agreement: One person agrees with someone else, to do something in return for an item of value (called ‘consideration’, in contract law). One of the most common forms of agreement is an employment agreement or contract. In the normal case, we would expect an employment contract, sometimes called a ‘contract of service’, to be between between two individuals only. For example, Mr Justice Clarke, Chief Justice of the Supreme Court of Ireland had this to say about tripartite employment agreements:
- “It might theoretically be possible that a person might work under a contract for service where there were two parties on the other side as it were, although the absence of any examples is telling. Certainly the axiom that a man cannot serve two masters reflects much of the law as well as common sense.” (The Minister for Education and Skills v Boyle [2018] IESC 52I).
Nevertheless, the law has recognized the existence and permissibility of these agreements with three individuals or ‘parties’: These are known as tripartite — literally ‘tri party’ —agreements.
An example of a tripartite agreement is ‘novation’. In novation, rights and obligations under the original contract are transferred from the original party, to a new third party. All parties must consent to novation.
Sample Tripartite Agreements
As mentioned, tripartite agreements can be applied in a range of contexts such as employment contracts and novation.
See some sample tripartite agreements in other contexts below:
- Partnerships and joint ventures — See the template tripartite agreement for partnerships between the UN High Commission for Refugees, collaborating non-profits and host governments
- The creation of security interests in solar EPC contracts — See PwC’s template tripartite agreement for Australia
- Dispute resolution — See the attached actual tripartite agreement where three parties working in a similar area of pharmaceutical manufacturing enter into an agreement to settle ongoing disputes between the parties.
Video: Tripartite Agreements in Action — Financing
In this video a proposal to use triparty agreements to coordinate action between banks, community investors and developers is discussed.
When Should You Consider a Tripartite Agreement?
Listed below are two common cases where tripartite agreements have proven useful:
- Intra-Group Transfers
- It is common for large companies to have branches in different countries which are set up as separate legal entities (e.g., subsidiaries). What if an employee seeks to transfer from country A to country B, within the same multi-national? This sometimes occurs as part of a permanent switch (such as the appointment of a ‘country manager‘ for that location; at other times, it is a temporary ‘secondment’. The original employer in country A, the new employer in country B, and the employee him or herself, can all commit to a tripartite agreement to determine how the new employment relationship would work. Note, a tripartite agreement may not be the most appropriate legal option for all intra-group transfers.
- Find out more about what you need to consider when moving employees around the world in What is Global Mobility and Why Is It Important?
- Outsourcing
- There can be major benefits to outsourcing a particular service or function, such as payroll: especially when outsourcing a function globally. In these cases, a tripartite agreement can be useful for setting out the rights and obligations of each party. For more information about outsourcing internationally read What is a Global Employment Organization?
- In addition to being beneficial when outsourcing employment (to an ‘Employer of Record‘), tri-partite agreements can also be useful when outsourcing contractor or freelancer management services.
To read more about how tripartite agreements can be implemented as part of a global human resources strategy see What Are the Best Tools for International Human Resource Management?
What are the Risks of Not Having a Tripartite Agreement?
It is possible to carry out an intra-group transfer, or to outsource, without a tripartite agreement. In some cases this may be necessary as the law in that country does not recognize tri-partite agreements. Where tri-partite agreements are permitted, however, there can be some risks involved in not using them. Two examples of how this could go wrong include:
- Confusion Over Employer Role
- In most countries, employers have an extensive range of obligations, such as providing annual leave, providing a safe and healthy workplace, and paying minimum wage. If there is no tripartite agreement in place, it can become unclear who has employer obligations. In a 2014 New Zealand Employment Court case, Judge Inglis faced a situation where “difficulties are compounded having regard to the tripartite relationship at issue here”. In that case, the employee was employed as a prison literacy tutor by the company ‘WDL’. The employee had an agreement with WDL. And WDL, in turn, had an agreement with the Department of Corrections (the agency that actually runs the prisons). But there was no agreement between the three distinct parties. The employee was terminated as a result of a Department of Corrections investigation. This raised the question, was this a fair dismissal given that the employer didn’t themselves investigate? A tri-partite agreement would have clarified the obligations of each party.
- Severance Obligations
- In some countries, outsourcing a function from one company to another (from a ‘customer’, to a ‘service provider’), can mean incurring severance obligations for employees in the customer’s company. This can sometimes be avoided by a tripartite agreement that transfers the employee to the service provider (with that employee’s consent’). For an in-depth analysis of how this operates in different countries, see the 2018 Global Outsourcing Employment Handbook.
What Should You Include in a Workforce Tripartite Agreement?
Usually, in a workforce tripartite agreement, all parties agree that the original employment relationship (with company x) will be switched to a new employer (company y). At the same time, the original employment contract is terminated, without severance or other benefits that usually accrue on termination.
When framing a tripartite agreement, important matters to consider include:
- The continuation of ‘length of service’. This is often particularly relevant for employee benefits
- The continuation of other key terms in the original contract, with the new employer
- Any terms in the original contract which specify how consent to transferring rights, or obligations under the contract, is to be obtained;
- A formal release from liability for both parties with respect to the original agreement that has now been terminated;
- An indemnification clause to ensure that each party will pay damages to the other, if any arise due to an alleged breach of the original contract.
When operating across international borders, a tripartite agreement should also identify which laws are to govern the contract. An English case, Chunilal v Merrill Lynch [2010] EWHC 1467 (Comm), concerned the intra-group transfer of a Merrill Lynch employee. The employee alleged that, under English law, an implied term of his contract had been breached through a ‘perverse’ reduction of his bonus payment. As the tripartite agreement did not specify which country’s laws applied (not to mention the fact that the employee agreed to the contract in New York, and actually worked and lived in Hong Kong), his case failed.
Horizons manages contracts for employees
If you are thinking about expanding your global workforce, you must ensure that you pick the right legal and compliance structures to suit your business. In some cases, it may make sense to incorporate a company in a foreign country. In other cases, it makes sense to hire a Professional Employer Organization (PEO), like Horizons.
When outsourcing, seconding or, transferring employees overseas, it is worth considering whether a tripartite agreement needs to be part of your business solution.
Frequently asked questions
A three-way contract is a tripartite agreement: A contract binding three parties.
A quadripartite agreement is a contract entered into by four distinct parties.
